Digital River says it was—by two years and two months, to be exact. Today, Digital River contracts with big software companies like Microsoft, Adobe, and VMWare to run their online software stores, but it's facing a lawsuit brought by patent-holding company DDR Holdings, which claims to have patented Digital River's core business and which wants a cut of its revenue from those stores.

Earlier this week, DDR went on the attack, making its case for why it should get more than $10 million from Digital River and $6 million from a smaller online travel company called World Travel Holdings (WTH). Now Digital River has had the chance to defend itself, and the case will shortly be in the hands of a Marshall jury of five women and three men.

If DDR wins this suit, it may well have plans to go after a broader share of online commerce. The company has already been paid for licenses by a big swath of e-commerce, including online travel companies like Expedia, Travelocity, and Orbitz, whose "affiliate marketing" programs were accused of infringing DDR patents.

DDR Holdings didn't file for its first patent until 1998, more than two years after Digital River was in the e-commerce business. But that might not matter in the end. DDR, the remains of a defunct dot-com called Nexchange, says it was the first company to create outsourced stores on the Internet that correctly copied the “look and feel” of the host website.

The patent-holding company wants 5.5 percent of Digital River’s revenue from the online stores it runs for Microsoft, VMWare, Adobe, and other big software companies—$10 million in all. (The majority of the revenue at stake comes from Digital River’s Microsoft store.) It also wants $6 million from WTH, an amount that far surpasses the $2.2 million in profits WTH says it has earned during the entire period in question. (DDR's lawyers have suggested WTH is understating its profits.)

But DDR has to overcome one big obstacle before it gets its money: a mountain of undisputed evidence that Digital River was in the e-commerce outsourcing business in 1996, a full two years and two months before Nexchange filed its patents.

DDR says that Digital River just didn’t get the “look and feel” of the host sites correctly back then, so whatever it was doing in 1996 can’t invalidate the DDR patents. This argument about the "look and feel" of a host website might sound like flimsy ground upon which to demand cash from other, successful companies, but it has so far been good enough to keep Nexchange/DDR patents alive after reexams at the patent office. Now, the case is up to a Texas jury.

Digital River’s story

Jim Pichler, one of Digital River’s two main witnesses, was the third employee hired at the company, back in 1996. At that time, Digital River was undergoing rapid growth, signing up clients who wanted the company to run an online store for them.

“As soon as a link went live, we had a ship’s bell in the office that we’d ring, so that the whole office could hear when we got someone live,” Pichler reminisced.

The bell was ringing a lot during Pichler’s time at the company. By the end of 1997, the company signed up its 1,000th customer. Despite the customers and the growth, these were lean years; Digital River was founded in 1994 but didn’t become profitable until 2001.

Digital River’s system would make copies of client webpages and then set up a “digital store” that would appear when customers clicked on a shopping link (such as a “buy now” button). Sometimes the images and content would be sent to Digital River directly by the client. In other situations, the company would use an early tool like “Web Whacker” to grab images from the client’s site. The potential buyer would thus view webpages that were being served up by Digital River, but wouldn’t know they had left the host website. Under questioning by his own lawyer, Pichler flipped through screen images of Digital River clients from that time, showing early snapshots of websites from Bitstream, Miramar Systems, Digital Frontiers, and others. (The images were called up on the court's Mac 6500, which sat next to Pichler on the witness stand.)

When DDR lawyers got their chance to cross-examine Pichler, they flipped through many of the same webpages, then talked about differences between the host pages and the store pages that Digital River served up. For example, on the Digital Frontier website, the store page was missing the navigation bar present on the main Digital Frontier site.

Pichler admitted that some of the pages looked different. “Our goal was to replicate the look and feel of the website,” but each client had its own peculiarities, and some stores matched their hosts better than others.

At least one early customer, Digital Frontier, was unhappy with Digital River’s work and DDR lawyers let the jury know it. “Perhaps Digital River should divert some of the effort it has put into marketing and newsletters towards hiring quality artists and writers,” wrote Digital Frontier president Chuck Duff in a letter shown in court. A fax of Digital River’s e-commerce page for Digital Frontier was marked up with handwritten notes. “Poor execution,” it read in the left-hand margin. On the right side, Duff had pointed to some of the design work Digital River did and had written, “This art looks like SHIT.”

“I apologize for the salty language,” said DDR’s lawyer Ian Crosby, while questioning Pichler about it.

Pichler tried to make the best of that situation, saying that the criticism showed how the client was largely in control of how the e-commerce site looked. When it came to the look of the online store, “this client certainly had opinions,” Pichler said.

A similar point was emphasized by the other Digital River witness, James Gagliardi. “It was really up to the client to decide what to include,” testified Gagliardi. “Our goal was that the customer had a similar experience, and felt comfortable buying from the Digital River store. That was our goal then [in 1996] and that’s our goal now.”

Real vs. ideal

In court this week, DDR’s lawyers and experts have accused Digital River of doing shoddy work that couldn’t possibly invalidate DDR’s patents, but they're also comparing that work to a kind of platonic ideal as embodied by their patents—not comparing it to what Nexchange was actually doing at the time. DDR lawyers and experts are insisting that Digital River failed to match the “look and feel” of a website as the court has defined that term, but Nexchange’s work wasn't featured prominently in court.

DDR is following a very particular line of reasoning. On the one hand, it has to convince the jury that Digital River’s work in 1996, 1997, and 1998 was so shoddy that it can't possibly invalidate the patents that Nexchange filed for in 1998. On the other hand, it has to convince them that Digital River’s work from 2006 and later—the period from which DDR wants to collect patent royalties—matched the patents exactly and made Digital River wealthy.

What the jury thinks of all of this remains to be seen. Closing arguments are scheduled for this morning. If DDR is successful, get ready for more rounds of patent attacks on e-commerce websites.

Waiting for the patent apologists to arrive and try and defend this utter garbage. It's really very simple, how can an "invention" rely on look and feel? Look and feel is pretty much the definition of copyright.

The fact that this kind of subtle tomfoolery is needed to even determine whether DR is on the hook or not shows in stark relief how overly broad and vague the initial patent must be. And underlines the crazy which must have been at work when it was re-validated...

So the precedent they want to set is: your prior art is invalid because it wasn't high quality?

Maybe Digital River should be countersuing because it seems like they had the idea 2 years early and successfully executed it, so didn't Nexchange steal from them?

Yeah, this seems quite odd. Patents aren't about execution, it's about the idea...the concept...the invention. Copyrights are about the actual execution (the actual words put to paper)...not the idea (a boy wizard who goes to magic school and fights bad people).

If I completely copy your mechanical device, but use cheap non-spec screws and low cost scrap metal for building it is still the same machine. How well I actually build the item (quality-wise) is of no consequence to whether a patent is infringed or not.

Does anybody but me recall early experiences with Digital River that were less than exciting? I remember my displeasure at making some (for me) major software purchases and finding out later (than the actual purchase decision and clicking on "buy") that they were to be "fulfilled" by Digital River. I recall thinking that the site mockups were intended to prevent me from finding out that my purchase had been handed off to a third-party that I knew nothing about. Some websites even went to pains to explain that purchases through DR were NOT handled by them.

On one hand, I'm really pissed off that this kind of stuff is even possible to sue over.

On the other hand, I'm really happy DDR brought this lawsuit, because they will get irrevocably shut down in court, and this case will be used as precedent to stop more bullshit cases in the future.

Not necessarily. This is East Texas we're talking about, the favorite litigation mecca of all patent trolls. I mean anytime someone files a patent suit in East Texas, it's almost always going to be filed by a patent troll because they're favored to win there.

Does anybody but me recall early experiences with Digital River that were less than exciting? I remember my displeasure at making some (for me) major software purchases and finding out later (than the actual purchase decision and clicking on "buy") that they were to be "fulfilled" by Digital River. I recall thinking that the site mockups were intended to prevent me from finding out that my purchase had been handed off to a third-party that I knew nothing about. Some websites even went to pains to explain that purchases through DR were NOT handled by them.

I remember that, at the time, third party websites were common. Vendors using Digital River were being very clear that the "shopping cart" was a third party so folks didn't feel like it was a scam or something. It also matters because CC charges show up as Digitial River to some degree. They weren't worried about it; nobody forced them to use the company!

Lotus (1-2-3) all over again. Spend time in court when you can't innovate any more. You'll sustain your litigious business model for a time (and shore up your company on the backs of those who actually work for a living) but eventually you'll fade into insignificance.

I bought from Digital River in the last couple of months (more than once). They ask for a downloadable software for default added option of ~ 85 of purchase price, to extend the period of download > X days. Duh? Did they get a patent on that?

You are just charging me for good customer service, as downloading earlier or later, makes negligible difference to cost.

I see all this BS on patent laws and it makes me nervous. There was a time when class action lawsuits were useful and righteous tools of consumer protection and then lawyers and politicians screwed it all up. Now class actions are almost useless and help almost no one. I am worried this will happen with patent laws.

When new laws get written we need to write them in two parts. The letter of the law and the spirit of the law. The spirit of the law needs to be given dominant legal authority. Strict rulings based on the letter of the law allow for ridiculous things like this.

I bought from Digital River in the last couple of months (more than once). They ask for a downloadable software for default added option of ~ 85 of purchase price, to extend the period of download > X days. Duh? Did they get a patent on that?

Ah! I had forgotten about the idea of "extended download" insurance. I thought at the time it was for the truly clueless. Of course, I did fall for the CD backup for a few bucks more than once. I still have some of the coasters squirreled away that I never once ended up using.

Call me a "patent apologist" if you will, but I think it's likely we don't have the whole story on this. I'm generally not a fan of pure and trivial software patents, but I think sometimes they have their place.

A utility patent can also cover the process for accomplishing the end result. Merely having the same end result using a different method wouldn't be prior art, nor constitute infringement. However, the quality of the end result may be relevant as both evidence of applying the process, as well as a demonstration that the process has value and infringement should be penalized more harshly.

To give an example of what might be going on here:

Company A produces widgets that have rounded corners. They use a costly, labor-intensive manufacturing method that often leaves rough edges. They do not claim any "IP"* on this, nor does the world think the widgets are magical.

Later, Company B also wants to produce similar widgets with rounded corners, but they are not satisfied with the existing manufacturing methods. They invent a new method that is cheap, fully automated, and leaves the surface smooth every time. They patent ther new method, "Manufacturing Process and Apparatus for the Production of Rounded Corners", use it for a while, but cannot compete in the marketplace. They end up a tiny company, nearly out of business, and no longer making widgets.

Eventually, Company A drastically improves the build quality, and at the same time, and lowers prices. Company B is able to determine that A is using the same manufacturing methods covered by their patent and sues.

This gets reported as "B Sues A Over Rounded Corners", and the public goes "LOLWUT rounded corners OMG troll!" Except it's not about having corners, it's about how they are made...

So... If this unidentified software patent covers algorithms that automatically create the sales pages so that they nicely match the customer's website, this could be legitamate.

*I put "IP" in quotes because I very much displike the term that everyone uses. Patents, Copyrights, Trademarks, and the like should not be considered property to be owned, bought, or sold. They are rights granted to those acknowledged as creators, which allow them to exclude others from certain uses. A license is a document of the terms in which permission is explicitly granted.

Waiting for the patent apologists to arrive and try and defend this utter garbage. It's really very simple, how can an "invention" rely on look and feel? Look and feel is pretty much the definition of copyright.

I don't consider myself a patent apologist - I've been working with the patent system for most of my professional life, in prosecution and on both sides of litigation, and I'm well aware of the problems with many aspects of the process. I've also been a regular Ars reader for over a decade. I've only started posting here recently because I've gotten frustrated with the low signal/noise ratio in many of the articles and comments on patent issues. IMHO, if you're going to rant against something, you have some obligation to first objectively understand what you're ranting about.

So the point of this post isn't to give any particular opinion on the merits, or lack thereof, of this lawsuit. Maybe it's utter garbage or maybe its the prototypical example of how the system is supposed to work. I have no idea. But, neither does anyone else who is basing their opinion on nothing more than the articles you're reading about it here.

Although both of the articles on this trial have completely focused on the more inflammatory "look and feel" aspect of the case, what is actually being litigated is considerably more complex--whether or not the claims DDR are asserting are valid and enforceable, and whether Digital River infringed those claims.

I'm guessing that DDR's theory is something like:Digital River was in the business doing X in some manner Y. They weren't doing very well.We came along and also go into the business of doing X, but in some manner Z, (which is different and not obvious from Y). We got a patent on the Z way of doing X.After we got our patent, Digital River stopped doing X in manner Y and started doing it in manner Z. Lo and behold, they got much more successful.Their success must be based on infringing our patent on the Z way of doing X. Therefore, they owe us money.

Although 'capturing the look and feel' of a website is part of what both companies were doing, it's only one element of one of the claims (I only looked at one) - the scope of the claim is limited by other steps as well as how the 'look and feel' is captured.

This case shouldn't even be in court based on what the lawyers are arguing.

Sounds nice, but it's not true. Ever hear of a design patent? It explicitly is for nonfunctional look and feel. I'm not supporting it, and obviously this particular patent is ridiculous and the patent system is broken... but nonetheless the current law is what it is.

I think there's a point where we just say, "Hey Marshall TX, you're done. Yeah, it was a good run, but you're either too corrupt or too crazy in the brainpan to decide patent suits anymore. Here's the leftovers from Judge Judy... go nuts."

This case shouldn't even be in court based on what the lawyers are arguing.

Sounds nice, but it's not true. Ever hear of a design patent? It explicitly is for nonfunctional look and feel. I'm not supporting it, and obviously this particular patent is ridiculous and the patent system is broken... but nonetheless the current law is what it is.

This case shouldn't even be in court based on what the lawyers are arguing.

Sounds nice, but it's not true. Ever hear of a design patent? It explicitly is for nonfunctional look and feel. I'm not supporting it, and obviously this particular patent is ridiculous and the patent system is broken... but nonetheless the current law is what it is.

This troll did not contribute anything at all. They didn't give them any of their code, or design PSD files, or configure their servers. They want to take something, for doing nothing.

Well, DDR did create a document that describes a technology, and obtained concurrence from the US government that the technology described has never been done before, is not obvious, and that the document contains sufficient detail to allow others to successfully replicate the technology. (In my view, this is where the patent problem exists; many patents are awarded that do not actually meet these criteria.)

Ergo, DDR showed the entire world *how* to do something. If you don't know how to do something, you can't do it. As an engineer, I can say that determining how to do my job is a major part of my job.

The real (legal) questions are:1) Had the specific technology described actually been publicly known as prior art?2) Is the solution "obvious" to someone skilled in the art?3) Has Digital River actually been using the same technology, or something sufficiently different?

So the point of this post isn't to give any particular opinion on the merits, or lack thereof, of this lawsuit. Maybe it's utter garbage or maybe its the prototypical example of how the system is supposed to work. I have no idea. But, neither does anyone else who is basing their opinion on nothing more than the articles you're reading about it here.

Although both of the articles on this trial have completely focused on the more inflammatory "look and feel" aspect of the case, what is actually being litigated is considerably more complex--whether or not the claims DDR are asserting are valid and enforceable, and whether Digital River infringed those claims.

I'm guessing that DDR's theory is something like:Digital River was in the business doing X in some manner Y. They weren't doing very well.We came along and also go into the business of doing X, but in some manner Z, (which is different and not obvious from Y). We got a patent on the Z way of doing X.After we got our patent, Digital River stopped doing X in manner Y and started doing it in manner Z. Lo and behold, they got much more successful.Their success must be based on infringing our patent on the Z way of doing X. Therefore, they owe us money.

Although 'capturing the look and feel' of a website is part of what both companies were doing, it's only one element of one of the claims (I only looked at one) - the scope of the claim is limited by other steps as well as how the 'look and feel' is captured.

Your description of DDR's theory sounds pretty close to what I heard in court, actually.

I would just add that I didn't focus on "look and feel" because it was inflammatory, I focused on the discussion about "look and feel" because that's what the entire court case was about. It was mentioned constantly, by (literally) almost every witness -- did Digital River capture the right "look and feel" of the website, or did they not?